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Article / 14 July 2016 at 10:31 GMT

Chinese shares consolidate before key macro data

Saxo Capital Markets China
  • SHCOMP closed lower, GEMI ended higher
  • Profit taking hits commodities stocks after recent rally
  • Market facing resistance near April highs before Friday's data release

Shanghai bull and bear
 Chinese stocks are in waiting mode ahead of Friday's key macro numbers. Pic: iStock

By Jay Luo

After a three-day gain, Chinese shares traded in a tight range on Thursday. The Shanghai Composite Index closed 0.22% lower at 3,054.02, and the Growth Enterprise Market Index edged 0.34% higher to 2,293.08. Total trading volume on the Shanghai and Shenzhen Stock Exchanges declined to CNY 587.9 billion. 

Precious metal, non-ferrous metal and coal stocks were among the top losers as profit taking emerged after the recent sharp rally. Expectations on further monetary easing, supply-side reform, foreign capital inflows after Brexit, and a commodity price rebound pushed up the valuations of some cyclical stocks and blue-chip shares.

Shanghai Composite Index near April high
Shanghai Composite Index, Daily
Source: EastMoney 

According to local brokerage Guoyuan Securities, the valuations of most industries are now near long-term average levels, except for non-banking financial service and defence shares, which are below their 10-year averages in spite of the recent rally.

These positive factors might have been largely priced in, and the market needs new catalysts for further gains, especially as the benchmark Shanghai Composite Index is now facing strong technical resistance near the April high of 3,090. Market focus, it seems, is now shifting to growth stocks, which have underperformed during the past month.

Growth Enterprise Market Index testing 250-day moving average
Growth Enterprise Market Index, Daily

Source: EastMoney

On Friday, China will release second-quarter GDP data (expectation is 6.6% y/y, previous 6.7%), as well as June retail sales (expectation is 9.9% y/y, previous 10.0%), its monetary supply report, fixed assets investment update and industrial production figures (expectation is 5.9% y/y, previous 6.0%).

– Edited by D. Deacon

Jay Luo is an editor and analyst at Saxo Capital Markets in China


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